Fourth Quarter Financial Results
VASCO Data Security International, Inc. (NASDAQ:VDSI), a global
leader in digital solutions including identity, security and
business productivity, today reported financial results for the
fourth quarter and full year ended December 31, 2017.
“VASCO® reported double-digit revenue growth in the fourth
quarter with positive contributions from software, services, and
hardware,” stated VASCO CEO, Scott Clements. “We are executing on
our strategy to drive growth in software and services resulting in
non-hardware revenue increasing 29% in 2017. For the quarter,
strong hardware sales and shifts in our regional sales mix
contributed to a lower gross profit margin. As we look to 2018, our
focus on developing and growing our software and services offerings
paired with continued demand for our hardware products positions
VASCO for accelerated growth.”
Revenue for the fourth quarter of 2017 increased 15% to $54.5
million from $47.6 million in the fourth quarter of 2016 and for
the full year 2017 increased 1% to $193.3 million from $192.3
million for the full year 2016.
Net loss for the fourth quarter of 2017 was $25.8 million or
($0.65) per fully diluted share, a decrease of $30.8 million from
net income of $5.0 million or $0.13 per fully diluted share for the
fourth quarter of 2016. Net loss for the full year 2017 was $22.4
million or ($0.56) per diluted share, a decrease of $32.9 million
from net income of $10.5 million or $0.27 per diluted share, for
the comparable period in 2016. The fourth quarter and full year
2017 results include an estimated one-time impact related to the
enactment of the Tax Cuts and Jobs Act of $28.1 million or ($0.70)
and ($0.71), respectively.
Operating income for the fourth quarter of 2017 was $1.2
million, a decrease of $1.0 million from $2.2 million reported for
the fourth quarter of 2016. Operating income for the full year 2017
was $6.2 million, a decrease of $3.4 million from $9.6 million
reported for the full year 2016. Operating income as a percentage
of revenue for the fourth quarter and full year 2017 was 2% and 3%,
respectively, compared to 5% and 5% for the comparable periods in
2016.
_____________________1 An
explanation of the use of non-GAAP measures is included below under
the heading “Non-GAAP Financial Measures.” A reconciliation of GAAP
to non-GAAP financial measures has also been provided in tables
below.
Non-GAAP net income1, which excludes long-term incentive
compensation, amortization of intangible assets and the impact of
the Tax Cuts and Jobs Act for the fourth quarter of 2017 was $5.7
million or $0.14 per fully diluted share, a decrease of $0.6
million from $6.3 million or $0.16 per fully diluted share, for the
fourth quarter of 2016. Non-GAAP net income for the full year 2017
was $17.0 million or $0.43 per fully diluted share, a decrease of
$4.5 million from $21.5 million or $0.54 per fully diluted share,
for the full year 2016.
For periods reported herein, we have revised amounts reported in
previously issued financial statements related to unrecorded
pension liabilities net of pension assets and related deferred
income taxes. The adjustments are a correction of immaterial errors
to the December 31, 2016 balance sheet and there are no adjustments
to the statement of operations. The adjustments are summarized
below (in thousands, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016 |
|
|
As previously reported |
|
Adjustment |
|
Corrected |
Total
assets |
|
$ |
327,270 |
|
|
$ |
- |
|
|
$ |
327,270 |
|
Other long-term
liabilities |
|
$ |
1,878 |
|
|
$ |
3,831 |
|
|
$ |
5,709 |
|
Deferred income
taxes |
|
|
853 |
|
|
|
(414 |
) |
|
|
439 |
|
Accumulated other
comprehensive loss |
|
|
(9,493 |
) |
|
|
(3,417 |
) |
|
|
(12,910 |
) |
Total
liabilities and stockholders' equity |
|
$ |
327,270 |
|
|
$ |
- |
|
|
$ |
327,270 |
|
Other Financial Metrics
- Gross profit was $35.9 million or 66% of revenue for the fourth
quarter of 2017 and $134.5 million or 70% of revenue for the full
year 2017. Gross profit was $32.0 million or 67% of revenue for the
fourth quarter of 2016 and $130.7 million or 68% of revenue the
full year 2016.
- Operating expenses for the fourth quarter and full year 2017
were $34.7 million and $128.3 million, respectively, an increase of
17% and 6% from $29.8 million and $121.1 million reported for the
fourth quarter and full year 2016, respectively.
- Adjusted earnings before interest, taxes, depreciation,
amortization and long-term incentive compensation (Adjusted
EBITDA)1 was $6.4 million and $22.9 million for the fourth quarter
and full year 2017, respectively, an increase of 36% from $4.7
million reported for the fourth quarter of 2016 and a decrease of
13% from $26.2 million reported for the full year 2016.
- Cash, cash equivalents and short-term investments at December
31, 2017 totaled $158.4 million compared to $158.7 million and
$144.2 million at September 30, 2017 and December 31, 2016,
respectively.
Fourth Quarter Operational and Other
Highlights
- Software revenue included a follow-on seven-figure eSignLiveTM
perpetual order from a top five North American bank. We also signed
a seven-figure eSignLive term license agreement with a major global
bank.
- Our hardware business continued to show strength with a seven
figure order from a long-term European banking customer while DG
VERLAG began offering VASCO’s CRONTO hardware to Germany’s second
largest retail banking cooperative.
- VASCO expanded its Board of Directors with the appointment of
Art Gilliland, CEO of Skyport Systems, as a new independent
director.
Outlook for Full Year 2018
VASCO’s guidance reflects the adoption of ASC 606.
- Revenue is expected to be in the range of $197 million to $207
million.
- Adjusted EBITDA is expected to be in the range of $21 million
to $25 million.
Conference Call Details
In conjunction with this announcement, VASCO Data Security
International, Inc. will host a conference call today, February 21,
2018, at 4:30 p.m. EST/22:30 CET. During the conference call, Mr.
Scott Clements, CEO, and Mr. Mark Hoyt, CFO, will discuss VASCO’s
results for the fourth quarter and full year 2017.
To participate in this conference call, please dial one of the
following numbers:
USA/Canada: 800‑659‑9004International: +1
303‑223‑4368
The conference call is also available in listen-only mode on
ir.vasco.com. The recorded version of the conference call will be
available on the VASCO website as soon as possible following the
call and will be available for replay for at least
60 days.
About VASCO
VASCO is a global leader in delivering trust and business
productivity solutions to the digital market. VASCO develops next
generation technologies that enable more than 10,000 customers in
100 countries in financial, enterprise, government, healthcare and
other segments to achieve their digital agenda, deliver an enhanced
customer experience and meet regulatory requirements. More than
half of the top 100 global banks rely on VASCO solutions to protect
their online, mobile, and ATM channels. VASCO’s solutions combine
to form a powerful trust platform that empowers businesses by
incorporating identity, fraud prevention, electronic and
transaction signing, mobile application protection and risk
analysis. Learn more about VASCO at VASCO.com and on
Twitter, LinkedIn and Facebook.
Forward Looking Statements
This press release contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of
1934 and Section 27A of the Securities Act of 1933, including,
without limitation the guidance for full year 2018. These
forward-looking statements (1) are identified by use of terms
and phrases such as “expect”, “believe”, “will”, “anticipate”,
“emerging”, “intend”, “plan”, “could”, “may”, “estimate”, “should”,
“objective”, “goal”, “possible”, “potential”, “project” and similar
words and expressions, but such words and phrases are not the
exclusive means of identifying them, and (2) are subject to
risks and uncertainties and represent our present expectations or
beliefs concerning future events. VASCO cautions that the
forward-looking statements are qualified by important factors that
could cause actual results to differ materially from those in the
forward-looking statements. These risks, uncertainties and
other factors have been described in our Annual Report on
Form 10‑K for the year ended December 31, 2016 and
include, but are not limited to, (a) risks of general market
conditions, including currency fluctuations and the uncertainties
resulting from turmoil in world economic and financial markets,
(b) risks inherent to the computer and network security
industry, including rapidly changing technology, evolving industry
standards, increasingly sophisticated hacking attempts, increasing
numbers of patent infringement claims, changes in customer
requirements, price competitive bidding, and changing government
regulations, and (c) risks specific to VASCO, including demand
for our products and services, competition from more established
firms and others, pressures on price levels and our historical
dependence on relatively few products, certain suppliers and
certain key customers. Thus, the results that we actually achieve
may differ materially from any anticipated results included in, or
implied by these statements. Except for our ongoing obligations to
disclose material information as required by the U.S. federal
securities laws, we do not have any obligations or intention to
release publicly any revisions to any forward-looking statements to
reflect events or circumstances in the future or to reflect the
occurrence of unanticipated events.
VASCO Data Security International,
Inc. |
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS |
(in thousands, except per share
data) |
(unaudited) |
|
|
|
Three months ended |
|
Twelve Months Ended |
|
|
December 31, |
|
December 31, |
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Product
and license |
|
$ |
42,803 |
|
|
$ |
37,271 |
|
|
$ |
147,257 |
|
|
$ |
156,057 |
Services
and other |
|
|
11,703 |
|
|
|
10,325 |
|
|
|
46,034 |
|
|
|
36,247 |
Total
revenue |
|
|
54,506 |
|
|
|
47,596 |
|
|
|
193,291 |
|
|
|
192,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
Product
and license |
|
|
15,665 |
|
|
|
13,266 |
|
|
|
48,333 |
|
|
|
53,191 |
Services
and other |
|
|
2,933 |
|
|
|
2,378 |
|
|
|
10,444 |
|
|
|
8,456 |
Total
cost of goods sold |
|
|
18,598 |
|
|
|
15,644 |
|
|
|
58,777 |
|
|
|
61,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
35,908 |
|
|
|
31,952 |
|
|
|
134,514 |
|
|
|
130,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and
marketing |
|
|
15,997 |
|
|
|
15,365 |
|
|
|
58,994 |
|
|
|
57,347 |
Research
and development |
|
|
5,450 |
|
|
|
5,597 |
|
|
|
23,119 |
|
|
|
23,214 |
General
and administrative |
|
|
11,077 |
|
|
|
6,577 |
|
|
|
37,400 |
|
|
|
31,648 |
Amortization of purchased intangible assets |
|
|
2,206 |
|
|
|
2,227 |
|
|
|
8,809 |
|
|
|
8,849 |
Total
operating costs |
|
|
34,730 |
|
|
|
29,766 |
|
|
|
128,322 |
|
|
|
121,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,178 |
|
|
|
2,186 |
|
|
|
6,192 |
|
|
|
9,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income,
net |
|
|
415 |
|
|
|
281 |
|
|
|
1,431 |
|
|
|
785 |
Other income (expense),
net |
|
|
356 |
|
|
|
262 |
|
|
|
758 |
|
|
|
993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes |
|
|
1,949 |
|
|
|
2,729 |
|
|
|
8,381 |
|
|
|
11,377 |
Provision (benefit) for
income taxes |
|
|
27,786 |
|
|
|
(2,283 |
) |
|
|
30,780 |
|
|
|
863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(25,837 |
) |
|
$ |
5,012 |
|
|
$ |
(22,399 |
) |
|
$ |
10,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.65 |
) |
|
$ |
0.13 |
|
|
$ |
(0.56 |
) |
|
$ |
0.27 |
Diluted |
|
$ |
(0.65 |
) |
|
$ |
0.13 |
|
|
$ |
(0.56 |
) |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
39,829 |
|
|
|
39,749 |
|
|
|
39,802 |
|
|
|
39,719 |
Diluted |
|
|
39,829 |
|
|
|
39,771 |
|
|
|
39,802 |
|
|
|
39,782 |
VASCO Data Security International,
Inc. |
CONDENSED CONSOLIDATED BALANCE
SHEETS |
(in thousands, unaudited) |
|
|
|
December 31, |
|
|
2017 |
|
|
2016 |
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash and
equivalents |
|
$ |
78,661 |
|
|
$ |
49,345 |
|
Short
term investments |
|
|
79,733 |
|
|
|
94,856 |
|
Accounts
receivable, net of allowance for doubtful accounts of $520 in 2017
and$535 in 2016 |
|
|
48,126 |
|
|
|
36,693 |
|
Inventories, net |
|
|
12,040 |
|
|
|
17,420 |
|
Prepaid
expenses |
|
|
3,876 |
|
|
|
3,249 |
|
Other
current assets |
|
|
5,501 |
|
|
|
5,596 |
|
Total current assets |
|
|
227,937 |
|
|
|
207,159 |
|
Property
and equipment, net |
|
|
4,776 |
|
|
|
3,281 |
|
Goodwill |
|
|
56,332 |
|
|
|
54,409 |
|
Intangible assets, net of accumulated amortization |
|
|
37,888 |
|
|
|
46,549 |
|
Other
assets |
|
|
10,689 |
|
|
|
15,872 |
|
Total assets |
|
$ |
337,622 |
|
|
$ |
327,270 |
|
LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Accounts
payable |
|
$ |
8,144 |
|
|
$ |
8,915 |
|
Deferred
revenue |
|
|
33,295 |
|
|
|
36,364 |
|
Accrued
wages and payroll taxes |
|
|
11,643 |
|
|
|
10,894 |
|
Short-term income taxes payable |
|
|
3,673 |
|
|
|
4,594 |
|
Other
accrued expenses |
|
|
7,745 |
|
|
|
5,464 |
|
Deferred
compensation |
|
|
1,652 |
|
|
|
1,729 |
|
Total
current liabilities |
|
|
66,152 |
|
|
|
67,960 |
|
Other
long-term liabilities |
|
|
12,938 |
|
|
|
5,709 |
|
Long-term
income taxes payable |
|
|
12,848 |
|
|
|
— |
|
Deferred
income taxes |
|
|
7,753 |
|
|
|
439 |
|
Total liabilities |
|
|
99,691 |
|
|
|
74,108 |
|
Stockholders' equity |
|
|
|
|
|
|
Common
stock |
|
|
40 |
|
|
|
40 |
|
Additional paid-in capital |
|
|
90,307 |
|
|
|
87,481 |
|
Accumulated income |
|
|
156,152 |
|
|
|
178,551 |
|
Accumulated other comprehensive loss |
|
|
(8,568 |
) |
|
|
(12,910 |
) |
Total
stockholders' equity |
|
|
237,931 |
|
|
|
253,162 |
|
Total liabilities and stockholders' equity |
|
$ |
337,622 |
|
|
$ |
327,270 |
|
Non-GAAP Financial
Measures
We report financial results in accordance with GAAP. We also
evaluate our performance using certain non-GAAP operating metrics,
namely Adjusted EBITDA, non-GAAP Net Income and non-GAAP diluted
EPS. Our management believes that these measures provide useful
supplemental information regarding the performance of our business
and facilitates comparisons to our historical operating results. We
believe these non-GAAP operating metrics provide additional tools
for investors to use to compare our business with other companies
in the industry.
These non-GAAP measures are not measures of performance under
GAAP and should not be considered in isolation, as alternatives or
substitutes for the most directly comparable financial measures
calculated in accordance with GAAP. While we believe that these
non-GAAP measures are useful within the context described below,
they are in fact incomplete and are not a measure that should be
used to evaluate our full performance or our prospects. Such an
evaluation needs to consider all of the complexities associated
with our business including, but not limited to, how past actions
are affecting current results and how they may affect future
results, how we have chosen to finance the business, and how taxes
affect the final amounts that are or will be available to
shareholders as a return on their investment. Reconciliations of
the non-GAAP measures to the most directly comparable GAAP
financial measures are found below.
Adjusted EBITDA
We define Adjusted EBITDA as net income (loss) before interest,
taxes, depreciation, amortization and long-term incentive
compensation. We use Adjusted EBITDA as a simplified measure of
performance for use in communicating our performance to investors
and analysts and for comparisons to other companies within our
industry. As a performance measure, we believe that Adjusted EBITDA
presents a view of our operating results that is most closely
related to serving our customers. By excluding interest, taxes,
depreciation, amortization and long-term incentive compensation we
are able to evaluate performance without considering decisions
that, in most cases, are not directly related to meeting our
customers’ requirements and were either made in prior periods
(e.g., depreciation, amortization and long-term incentive
compensation), or deal with the structure or financing of the
business (e.g., interest) or reflect the application of regulations
that are outside of the control of our management team (e.g.,
taxes). Similarly, we find the comparison of our results to those
of our competitors is facilitated when we do not consider the
impact of these items.
Reconciliation of Net Income (Loss) to
Adjusted EBITDA |
(in thousands, unaudited) |
|
|
|
Three months ended |
|
Twelve Months Ended |
|
|
December 31, |
|
December 31, |
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
Net income (loss) |
|
$ |
(25,837 |
) |
|
$ |
5,012 |
|
|
$ |
(22,399 |
) |
|
$ |
10,514 |
|
Interest
income, net |
|
|
(415 |
) |
|
|
(281 |
) |
|
|
(1,431 |
) |
|
|
(785 |
) |
Provision
(benefit) for income taxes |
|
|
27,786 |
|
|
|
(2,283 |
) |
|
|
30,780 |
|
|
|
863 |
|
Depreciation and amortization |
|
|
2,708 |
|
|
|
2,850 |
|
|
|
10,601 |
|
|
|
10,777 |
|
Long-term
incentive compensation |
|
|
2,173 |
|
|
|
(586 |
) |
|
|
5,372 |
|
|
|
4,871 |
|
Adjusted EBITDA |
|
$ |
6,415 |
|
|
$ |
4,712 |
|
|
$ |
22,923 |
|
|
$ |
26,240 |
|
Non-GAAP Net Income & Non-GAAP Diluted
EPS
We define non-GAAP net income and non-GAAP diluted EPS, as net
income or EPS before the consideration of long-term incentive
compensation expenses, the amortization of purchased intangible
assets and the impact of tax reform. We use these measures to
assess the impact of our performance excluding items that can
significantly impact the comparison of our results between periods
and the comparison to competitors.
Long-term incentive compensation for management and others is
directly tied to performance and this measure allows management to
see the relationship of the cost of incentives to the performance
of the business operations directly if such incentives are based on
that period’s performance. To the extent that such incentives are
based on performance over a period of several years, there may
be periods which have significant adjustments to the accruals in
the period but which relate to a longer period of time, and which
can make it difficult to assess the results of the business
operations in the current period. In addition, the Company’s
long-term incentives generally reflect the use of restricted stock
grants or cash awards while other companies may use different forms
of incentives the cost of which is determined on a different basis,
which makes a comparison difficult.
We exclude amortization of purchased intangible assets as we
believe the amount of such expenses in any given period may not be
correlated directly to the performance of the business operations
and that such expenses can vary significantly between periods as a
result of new acquisitions, the full amortization of previously
acquired intangible assets or the write down of such assets due to
an impairment event. However, purchased intangible assets
contribute to current and future revenue and related amortization
expense will recur in future periods until expired or written down.
We make a tax adjustment based on the above adjustments resulting
in an effective tax rate on a non-GAAP basis, which may differ from
the GAAP tax rate. We believe the effective tax rates we use in the
adjustment are reasonable estimates of the overall tax rates for
the Company under its global operating structure.
We also exclude the impact of tax reform in the enactment period
for items that are not reoccurring. For the fourth quarter and full
year results of 2017, our estimate includes tax rate changes in the
US and Belgium, deemed repatriation and tax elections related to
tax reform. We believe disclosing the estimate improves the
comparability of results.
Reconciliation of Net Income to Non-GAAP Net
Income |
(in thousands except per share data,
unaudited) |
|
|
|
Three months ended |
|
Twelve Months Ended |
|
|
December 31, |
|
December 31, |
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
Net income (loss) |
|
$ |
(25,837 |
) |
|
$ |
5,012 |
|
|
$ |
(22,399 |
) |
|
$ |
10,514 |
|
Long-term
incentive compensation |
|
|
2,173 |
|
|
|
(586 |
) |
|
|
5,372 |
|
|
|
4,871 |
|
Amortization of purchased intangible assets |
|
|
2,206 |
|
|
|
2,227 |
|
|
|
8,809 |
|
|
|
8,849 |
|
Tax
impact of adjustments* |
|
|
(876 |
) |
|
|
(328 |
) |
|
|
(2,836 |
) |
|
|
(2,744 |
) |
Impact of
tax reform |
|
|
28,075 |
|
|
|
— |
|
|
|
28,075 |
|
|
|
— |
|
Non-GAAP net
income |
|
$ |
5,741 |
|
|
$ |
6,325 |
|
|
$ |
17,021 |
|
|
$ |
21,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP diluted
EPS |
|
$ |
0.14 |
|
|
$ |
0.16 |
|
|
$ |
0.43 |
|
|
$ |
0.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
outstanding |
|
|
39,829 |
|
|
|
39,771 |
|
|
|
39,802 |
|
|
|
39,782 |
|
* = The tax impact of adjustments
is calculated at 20% of the adjustments in all periods
Copyright © 2018 VASCO Data Security, Inc., VASCO Data
Security International GmbH. All rights reserved. VASCO®,
DIGIPASS®, CRONTO®, and eSignLive™ are registered or unregistered
trademarks of VASCO Data Security, Inc. and/or VASCO Data
Security International GmbH, or Silanis Technology Inc. in the
U.S. and other countries.
For more information contact:Joe Maxa+1 612‑247‑8592
joe.maxa@vasco.com
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